Improve the odds of success of your rental business by using hard, proven data to make investment choices. If you’ve been in the game for a while, you’ll know that it typically involves reviewing past trends and market dynamics to get a solid idea of tenant behavior. However, these metrics often look to the past, which leaves some room for guesswork and comes with a significant risk of missing the mark. That’s why savvy investors are now using predictive analytics before acquiring a rental property. Continue reading below as we rely on outdated information when you can accurately forecast rental income, and potential risks with your tenant applicants.
Challenges of Traditional Rental Property Investment
Inaccurate Revenue Forecast
Avoid relying solely on traditional methods like the 1% rule or linear projections. If you’re considering buying a new property, it’s tempting to use basic calculations to estimate future rental income or vacancy rates. However, these options rarely account for market volatility or economic changes, which can lead to lower revenue or higher maintenance costs. That’s why Bay Management Group works with reliable contractors to help keep costs more predictable and in realistic alignment with your goals.
Limited Market Insight
Another problem with using traditional rental analysis methods is that it rely heavily on historical data that may not always be readily available. For instance, investors trying to weigh the benefits of purchasing a house in a new neighborhood will have no or very little pre-existing data to work with in their decision-making. Besides, gentrification and other economic situations can make past information unreliable in predicting a neighborhood’s desirability.
Time Consuming Manual Research
If you’re doing a traditional rental assessment, then you have to anticipate several hours of manual research. Looking through local regulations, comparing similar rentals, and researching property history to get a mildly accurate picture of your potential investment requires a lot of time and effort. Besides being such a low ROI task, especially considering some of the information may be outdated, the laborious demand limits how many properties you can thoroughly evaluate. You could lose out on prime opportunities by overlooking them or doing subpar work due to the strenuous research process.
Growing Importance of Predictive Analytics in Rental Properties
Refine Property Valuation
Sharpen your property valuation techniques by looking to the future with predictive analytics. Instead of relying on static information like past property sales prices, forward thinking models analyze patterns in rental demand and economic indicators to get a price tag. For example, if a neighborhood has a new mall or bus route, previous home sales may be worth significantly less than they would today because of the added incentive for tenants to live in the area now.
Assess Tenant Risks
Aside from giving you an updated property valuation, predictive analytics also tells you more about potential tenant risks. Protect your business from problematic renters and limit turnover when you go beyond using basic credit scores. With a more holistic view, you can forecast the likelihood of on-time rental payments and lease compliance. Property owners can also benefit from using predictive maintenance to anticipate issues right away.
During Screening
Identify potential tenant red flags early with predictive analytics. Too many landlords bypass a thorough screening process in favor of filling their vacancies quickly, often hoping that a candidate with a good credit score will be a good tenant. However, a renter’s financial history is only part of the equation, and it can backfire terribly if you rely solely on it. On the other hand, forward-thinking property owners also use employment history, criminal records, and previous references to detect tenant patterns and predict their behavior.
Adapting to Predictive Analytics for Buying Decisions
Reduce Risks
Incorporate predictive analytics into your buying process to secure the best rental. Not only does it give you an edge by taking a more proactive approach to house shopping, it also helps you anticipate future tenant issues and prepare ahead. For instance, if recent economic factors point towards a potential property being in a declining neighborhood, past figures may represent a peak before an impending slump. Thus, data-driven predictions can help you avoid costly mistakes.
Optimize Investment Returns
Get the most out of your property by accurately forecasting rental demand. Besides avoiding pitfalls, predictive analytics helps you identify lucrative properties that have the potential to become high-performing properties. As a result, buying in early can help you secure better cash flow and long-term value.
Conclusion
Get more accurate performance forecasts of potential investment properties by relying on predictive analytics. Aside from requiring time-consuming research, traditional evaluation methods depend too heavily on past information that could be outdated or fail to capture current market insights. As a result, investors may make inaccurate guesses on the profitability of a property, which can negatively affect your portfolio. On the other hand, predictive analytics gives you a better property valuation and can even highlight potential tenant risks during a thorough screening process. If you want to maintain an edge in a competitive real estate environment, look to the future, not the past.
